Employer records: movement of an employer record: successions
When you are notified that a business has changed hands it is important that you establish whether a true succession has taken place.
- Regulations 102 to 104 of the Income Tax (Pay As You Earn) Regulations 2003 confirm how successions take place for PAYE purposes
Regulation 102 applies where there is a change of employer but the employee remains in employment in the same business, and it means the new owner can take over the operation of PAYE without completion of forms P45. The old employer remains responsible for any tax due on payments he makes, but the new employer completes the end of year returns for the whole year.
A succession can only take place if the old and new employers agree to it. If the old employer issues forms P45 and closes down the existing PAYE scheme, then HMRC must open a new scheme for the new employer. Likewise, if the new owner continues an existing business but does not want to assume responsibility for the period up to the date of the change then no succession has taken place.
It is quite easy to mistake a change in circumstances as a succession, but an employer succession arises only where
- The ownership of a business changes from one legal entity to another
- The new owner takes responsibility for the pay records of the old employer
Both conditions must be satisfied before it is considered that an employer succession has taken place and you must confirm this.
Note: You cannot succeed an employer record on the same day that the employer record was set up.
The new owner
The new owner must be a different legal entity from the old employer. For example, an existing sole trader or partnership employer that incorporates as a limited company or a new owner acquiring the business who is unconnected with the old employer.
A succession has taken place
If a succession has taken place, it is important that you are aware of the old and new employer’s PAYE responsibilities.
The old employer
- Is responsible for deducting PAYE and National Insurance contributions up to the date of the succession
- Does not complete any forms P45 for the employees transferring to the new employer
- Does not complete a P35 employer annual return for the year in which the succession took place
- Does not complete forms P14 for the year in which the succession took place
The new employer
- Will require a new employer PAYE reference see PAYE20170
- Is responsible for the payment of Income Tax and National Insurance contributions from the date the succession took place
- Must complete a P35 employer annual return for the whole year in which the succession took place
- Complete forms P14 for the whole of the tax year in which the succession took place
- Complete forms P60 for the whole of the tax year in which the succession took place
A succession has not taken place
In this situation
- The old employer will need to be ceased. Further guidance can be found in EO SPD 1 and / or EO SPD 2
- An employer annual return and forms P45 will be required for the period from 6 April to the date of the change
- The old employer is responsible for remitting Income Tax and NIC up to the date of cessation
- The new employer will require a new PAYE scheme. Further details can be found in section ‘Setting up employer records’ PAYE20170
- The new employer will be responsible for deducting PAYE and NICs due from the commencement of the new scheme and paying this to HMRC
It is important that you deal with the succession of PAYE schemes correctly. The PAYE Schemes Merger Succession Cessation flow chart (PDF 878) and the examples shown in the table at PAYE30001 may help in deciding the correct action to take.
If you remain unclear on what action you should take in particular circumstances
- Seek advice from your office contact
- The nominated officer may contact the EBS Helpdesk for advice where required
Note: If the shareholders of a limited company decide to sell their shares to another party but the company continues to employ and pay their existing employees and completes the end of year return for the whole year, a succession has not occurred for PAYE purposes. The limited company continues under the existing PAYE scheme.
Construction industry schemes
There is no provision in the Regulations, to allow successions to apply to contractors.
If a contractor’s business changes hands, the old owner is treated as a cessation and you will need to follow EO SPD 1 and / or EO SPD 2. In addition, the ceasing contractor must pay over the amounts deducted from payments made to subcontractors up to the date of the change and complete a monthly return for this period.
The new owner is treated as a completely new employer. You will need to set up a new employer record. For more information see section ‘Setting up employer records’ PAYE20170.
Limited liability partnerships and successions
When notified of the creation of a Limited Liability Partnership (LLP) you should confirm if a succession has taken place in the normal way. As the LLP is a separate legal entity, then as long as the LLP is agreeable to taking over the pay records of the old employer a succession has taken place.
If a limited company is succeeded by an LLP and the directors of the company will be partners in the LLP, then the company should issue forms P45 to the directors. The directors will no longer be office holders in the limited company and will be taxed on a self employed basis.
If you are notified of the creation of a LLP and need to set up a new employer record you should follow the guidance in Action Guide ‘Limited liability partnerships’ at PAYE21141.
Successions in RTI
From 6 April 2013 it is important to take the action on EBS as near to the date the succession legally took place as possible. More information on scheme successions in RTI can be found at PAYE30009.